BATR – living on borrowed time ?

It is reported in the Financial Times that the chairman of the private equity firm, SVG Capital, has commented on the apparent generosity afforded to investors by business asset taper relief (BATR) for capital gains tax. The availability of BATR, and its effect on the private equity market, has already been raised by a number of trades union officials, albeit in a somewhat less than cogent fashion.

In the current political climate, one has to wonder whether BATR may now be curtailed. We have long since expressed the view that this relief, giving an effective CGT rate of only 10% on shares and other business assets disposed of after only two years, is a politically fragile relief. Further, because of its ambulatory nature, its continuing availability should not be overly relied upon by the entrepreneur.

Elsewhere, there remains the substantial shareholding exemption (SSE), introduced in 2002, but which remains under-utilised by the average private businessman in basic strategic tax planning. SSE is one of the most politically robust of tax exemptions and far more reliance can sensibly be placed its continuing availability when compared to BATR.

It is possible, both for the start up and the existing business, to adopt a relatively simple structure which can offer the advantages of both BATR and SSE. To adopt a business structure which factors in both SSE and BATR affords strategic protection to the entrepreneur who might otherwise be relying solely on the continued availability of BATR only to find that a future change in the rules for this relief is detrimental.